The notion of deemed export under GST is an essential preservation of India’s taxation structure, bolstering businesses that supply goods within the Indian territory, just like exports. Deemed exports, on the other hand, deal with such transactions when the goods are not leaving India, but the entities are still eligible for export benefits as per the rules. Deemed exports get special attention from the GST mechanism under the specific provisions existing for claiming tax benefits and refunds.
Definition and Legal Provisions of Deemed Export
Meaning of deemed export under Section 147 of the CGST Act, 2017 It refers to goods with supply characteristics where they are considered as exports for tax purposes, though they stay within India. Notification No. 48/2017-Central Tax, dated October 18, 2017, specifies transactions that will be regarded as deemed exports by the government.
Deemed exports under the Integrated Goods and Services Tax (IGST): Zero-rated supplies in Terms of Section 16 of the IGST Act are not expected. However, deemed exports are limited only to goods, unlike zero-rated exports, where both goods and services are eligible to receive tax exemption.
Key Features of Deemed Export
- Applicability: Deemed export is applicable only for certain notified supply of
- No Physical Export: In case of no physical export, the goods remain within India.
- Required Transactions: The government only lists certain transactions.
- Tax Payment Compulsion: As against the export zero-rated exports, deemed exports are also accountable for GST, which can be refunded in due course.
- GST Refund: Either the supplier or the recipient is eligible for a refund of the GST paid.
Transactions Covered under Deemed Export
The following transactions shall be treated as deemed exports under GST vide Notification No. 48/2017-Central Tax:
- Supply of Goods by Manufacturers to Advance Authorization Holders: AA holders can purchase goods from suppliers without making the required duty payments as long as the final product is exported.
- Supply of capital goods to Export Promotion Capital Goods (EPCG) license holders: Businesses involved in capital-intensive industries would get tax refunds.
- Supply of goods by domestic suppliers to an Export-Oriented Unit (EOU): Such units in Special Economic Zones (SEZs) or EOUs can avail of tax-free purchases of goods.
- Supply of goods under specific projects funded by multilateral agencies: Projects approved by the government and financed by the World Bank, Asian Development Bank, and the like are eligible.
Deemed Export Vs Physical Export
- While deemed exports and physical exports have similarities, they differ in some important ways:
- Nature of Movement: In case of physical exports, the movement of goods is outside India, whereas in deemed exports, the goods do not leave the country.
- GST Applicability: Deemed exports are liable for payment of GST at the time of supply however physical exports are zero-rated for the purpose of Section 16 of the IGST
- Refund Mechanism: Exporters get a rebate on the input tax credit or tax paid on inputs in physical exports. The supplier or the supplier can claim the GST paid on the last supply, which is refundable in terms of deemed exports.
Refund Mechanism for Deemed Export
One of the most significant benefits of deemed exports under GST is that it is entitled to receive refunds. Here is how to claim a refund:
Eligibility for Refund
Who can claim GST refunds on deemed exports:
- The supplier of the goods
- If the supplier does not assert the refund, the recipient of the goods
Conditions for Refund Claim
To process a refund, the following must apply:
- As per the GST law, the subject supply shall be considered a deemed export.
- Goods should not be exempt from GST.
- The recipient should not have taken ITC on the supply.
- You have two years from the time you paid the tax to apply for your refund.
Documents Needed to Apply for a Refund
The documents required for a refund are as follows:
- Tax Invoice: document confirming the fact of supplying goods.
- Payment Proof: Evidence of payment for the supply.
- Statement of Invoices: A summary of all invoices between the business and the Customer for which a refund is sought.
- Declaration: A declaration confirming that no ITC has been availed.
- Undertaking by Recipient: If the refund is to be claimed by the supplier, then the recipient needs to give an undertaking that they haven’t claimed ITC
Filing Procedure for Refund
- GST refund application is filed online through Form GST RFD-01 on the GST portal.
- The Jurisdictional GST Officer examines the application as well as the documents.
- If approved, the refund amount is transferred to the applicant’s bank account.
Deemed Export under GST and its Benefits
- Liquidity and Cash Flow Improvement: Since GST is finally charged on deemed exports, businesses can recover tax payments through refunds, ensuring better cash flow management.
- Export Policy Compliance: Deemed exports indirectly facilitate exports by assisting manufacturing units servicing export-oriented businesses.
- Incentives for Domestic Suppliers: The government also treats select domestic supplies as deemed exports, which makes them eligible for various export benefits, thus rewarding domestic manufacturers and suppliers, which contributes to Make in India.
Challenges in Claiming Deemed Export Benefits
- Complex Documentation: Businesses are required to submit a large amount of paperwork, including invoices, payment confirmations and declarations, to request refunds.
- Processing Delays: During this, the claim is under scrutiny by GST officers, the time taken for refund processing and the potential GST recovery delays.
- Limited Scope: As deemed exports only apply to certain transactions, many domestic suppliers might be ineligible for benefits.
Conclusion
Deemed exports are an important provision in GST that applies to persons supplying goods essential for export-oriented operations in India. The government should not fund itself by taxing those sales as long as the seller is registered for tax. Keeping in sync with the developing provisions of GST, the suppliers and recipients of deemed exports should remain aware of the applicable legal provisions to reap the perks of deemed exports.
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Frequently Asked Questions
1. What is deemed export under GST?
The Deemed export is notified transactions that are supplied within India but considered as exports for the purpose of tax benefits.
2. Who is entitled to a refund of deemed exports?
The refund of the GST paid may be claimed either by the supplier or the goods recipient as long as Input Tax Credit (ITC) has not been claimed by the recipient.
3. What should be the tax payment for deemed exports under GST?
Correct, GST is levied on supply, but it can be subsequently refunded on a formal application.
4. What is the limit for claiming a refund on deemed exports?
The refund application should be submitted within a period of two years of payment of tax.
5. Are services included in deemed exports?
No, deemed exports under GST cannot be applicable to services but only to goods.
